Question $1.$ Wilcy Custom Builder was established in $1960$ by Jason Wilcy and initially built high$-$quality customized homes under contract with specifie bayers. In the $1990$s$,$ Rock's soen joined the company and expanded Wiley $\text{'}$s activities into industrial and commercial retail markets. Upon the retirement of Wiley $\text{'}$s long$-$time financial manager, Wiley $"$s soe recently hired Christiansen, a former college friend, as the new controller for Wiley. Christiansen, has been associated with a public accounting firm for the last $6$ years.

Upon reviewing Wiley $\text{'}$s accounting practices, Christiansen observod that Whley followed the completed$-$contract method of revenue recognition, a carryover from the years when individual home building was the majority of Wiley $\text{'}$s operations. Several years ago, the predominant portion of Wiley $"$s activities shifted to the commercial retail and industrial building areas. From land acquisition to the completion of construction, most building contracts cover several years. Under the circumstances, Christiansen believes that Wiley should follow the percentage$-$of$-$completion method of accounting. From a typical building coetract, Christiansen developed the following data.

$\backslash$table$[[$Rose Mall$],[$Contract price: $$7,000,000,2014,2015,2016],[,$$$1,000,000,$$$2,200,000,$$$1,800,000$

$(3)$ Further assume that, in addition to the cost overruns of $$800,000$ for this contract incurred under part $($b$)(2),$ inflationary factors over and above those anticipated in the development of the original contract cost have caused an additional cost overrun of $$450,000$ in $2015.$ It is not anticipated that any cost overruns will occur in $2016.$